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UK Treasury Announces £3.7 billion in Funding for New Housing Projects

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In its Autumn Statement to parliament Wednesday, the UK Treasury announced plans to inject £3.7 billion into making housing more affordable in the country and narrowing the gap between supply and demand.

Specifically, Chancellor of the Exchequer Philip Hammond announced that the UK authorities planned to pump £2.3 billion into building up to 100,000 homes in high-demand areas.

The budget also plans to invest £1.4 billion into constructing some 40,000 affordable housing units.

“This package means that over the course of this Parliament, the government expects to more than double, in real terms, annual capital spending on housing,” Hammond said.

“The challenge of delivering the housing we so desperately need in the places where it is currently least affordable is not a new one,” said Hammond

Many analysts lauded the news. “The funding boost Chancellor Hammond announced in the Autumn Statement will make it possible for struggling families to purchase homes, and will introduce homes in the areas most affected by the UK's long standing supply-demand gap,” said Marina Filichkina, head of sales at international real estate broker Tranio.com.

“This is very optimistic for the UK housing market, which has been rocked by uncertainty since the Brexit referendum a few months ago. In particular, many are expecting housing developers to slow their building activities amid Brexit-related uncertainties. Thus, Hammond’s announcement may serve as a confidence boost in the UK’s post-Brexit property market," she added.

Hammond went on to note that the government is working to ensure that transport funding is being used to support housing growth.

“This could boost housing prices in all affected areas,” said Tranio real estate analyst Yulia Kozhevnikova, citing the success of Crossrail, the railway line under development in and around London.

“In London, Crossrail is driving demand and property prices. In 2015, property prices near some of the Crossrail terminals surged by 100%,” Kozhevnikova said.

The disparity between supply and demand has driven UK price growth in recent years, and has prompted the UK parliament to declare housing supply as among its key issues.

“Successive Governments have failed to ensure housing supply matches demand,” said a May 2015 paper released by the UK parliament. “Though it may only recently have captured widespread political attention, it has been clear for some time that housing supply is not keeping up with the additional demand generated by rising life expectancy, immigration and the growing number of one-person households.”

At the time, parliament predicted that some 232,000 to 300,000 additional housing units were required each year, noting that this level exceeded current supply levels by some two to three times, and adding that the UK had not experienced such high demand since the late 1970s.

Hammond echoed this point while delivering the Autumn Statement: “The challenge of delivering the housing we so desperately need in the places where it is currently least affordable is not a new one… But the effect of unaffordable housing on our nation’s productivity makes it an urgent one.”

While addressing devolution, Hammond added, “I can announce today that London will receive £3.15 billion as its share of national affordable housing funding to deliver over 90,000 homes” by 2020-21.

Tranio.com analyst Kozhevnikova noted that the city has plenty of room for development. “The population density in central London (55 inhabitants per hectare) is lower than that of many European capitals like Madrid and Paris (286 and 213 inhabitants per hectare, respectively), and the British capital has room for another 1.4 million new homes,” she said.

The Autumn Statement also addressed construction acceleration, stating: "the government will invest £1.7 billion by 2020-21… to speed up house building on public sector land in England through partnerships with private sector developers.”

Finally, he noted that the government would fund a large-scale regional pilot of the Right to Buy, a scheme aimed at helping tenants purchase their rented homes at a discount, for housing association tenants. “Over 3,000 tenants will be able to buy their own home with Right to Buy discounts under the pilot,” the statement read.

The statement indicated that a Housing White Paper will be published shortly. The paper will lay out a comprehensive set of reforms aimed at bolstering the United Kingdom’s housing supply and increasing affordability.

Despite predictions to the contrary, the Autumn Statement effectively remained silent on a controversial stamp tax increase that entered into force in April. Under the new rules, homebuyers face an additional 3% stamp duty surcharge on second homes.

The move, which aimed to ease the burdens of first-time homebuyers and owner-occupiers, has provoked a great deal of controversy. A key criticism is that the stamp duty unfairly effects non-BTL investors, such as parents looking to purchase homes for their kids or homeowners who are having trouble selling their current homes, but want or need to move into a new one.

In February and March 2016, just before the new rules took effect, residential property sales in the UK surged by 71%, according to data released by the Office of National Statistics. In March 2016, flat and maisonette sales were more than double what they had been during the same month for the past five years. This uptick was driven by demand for buy-to-let properties.

In April, when the stamp duty increase took effect, property sales dipped by 19.6% below the five-year average for the same month, according to the official statistics.

Ingrid Burke, Tranio.com

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